The Revenue Commissioners have said Ireland’s 400,000 Vodafone shareholders need not face a tax bill from the windfall payment by the company next month.

The reason, as the tax office explained yesterday, is that almost 15 years after their original investment, the shareholders are still operating at a loss on that investment.

The tax authorities issued “provisional” guidance on the tax implications of the move by Vodafone to return money to shareholders in cash and shares in US telecoms group Verizon following its decision to sell its US business to Verizon, its partner in the venture.

Assuming shareholders approve the deal next week, Irish investors stand to receive a windfall of more than €27.5 million, based on a minimum holding of 55 shares. The actual payout could therefore be a multiple of this.

The Irish investors are the rump of the 450,000 people who originally invested in Telecom Éireann when it first floated in 1999. When Telecom sold its mobile business Eircell shortly afterwards, shareholders were paid with Vodafone shares.

The precise value of the deal is uncertain as the split between cash and shares will depend on the price of Verizon shares shortly before the demerger of the business is completed – sometime around February 21st.

The “provisional” guidance published by the Revenue is based on what would have happened if the shares had been valued on December 6th last.

However, it is not expected that there will be a dramatic difference, though Verizon shares have lost a little of their value in the meantime. Shareholders can choose to receive their windfall in one of two ways – as income by way of a special dividend or as capital.

In a detailed briefing published yesterday, Revenue explains that those opting to take the payment as capital will not face a bill for capital gains tax. According to the figures provided by Vodafone, shareholders will receive about 36 cent in cash for each Vodafone share they currently hold plus Verizon stock worth 89 cent, for a total payout of €1.25 per share they hold.

But Revenue says that the value “base cost”, or original value of the US arm of the business is close to €2.18 per Vodafone share. Thus Revenue estimates that shareholders will be nearly one euro down on each of the Vodafone shares under the “windfall”.

While sobering, it does mean no capital gain arises and therefore no liability to capital gains tax.Those choosing to take the windfall as income will, however, face an income tax bill at the highest rate they pay this year.